Covenant – Constitution of Trust
a) On our first issue, we would have to consider the written covenant by Angelina in 2005. Her first intention was to make a discretionary trust for her children, but would the trust be enforceable just because it was written in a deed? The basic meaning of a covenant is a formal way in which the common law allows a person to make binding promises. Unlike contract, a covenant can be enforced in the common law regardless of consideration. But in equity, the trust would be held insufficient unless all formalities have been administered, which in our current situation, the trust was incompletely constituted. The main issue arose when none of the personal possessions listed on the covenant was transferred to Brad, the trustee. To add on the problem, there was no evidence that the children have provided consideration for Angelina’s promise, therefore they were merely volunteers under equity where it should completely render the trust unenforceable. This was shown in the famous axiom in Milroy v Lord, Turner J denotes: ‘Equity will not assist a volunteer to perfect an imperfect gift.’ What this means is, equity simply will not assist a person to become a beneficiary under a trust, unless the trust is fully constituted or if the person is already a beneficiary, then it would not matter if the person provided consideration. Equity will not enforce a gratuitous promise just because it is in a deed, it will not order a specific performance if consideration was not provided. As Hackney explains it, ‘You cannot sue for presents in equity’ and also stated in the leading case of Re Pryce: Eve J’s famous axiom ‘Volunteers have no right whatever to obtain specific performance of a mere covenant which has remained as a covenant and has never been performed’
Re Pryce was an extensively criticized case. The settlor entered into a covenant with his trustees to transfer a partial of his property to his children, but there have been no children in existence to take the benefit. As it turned out, the trust was supposing to benefit the next of kin when similar situations happen. As the next of kin provided no consideration, they persuaded the trustees to sue for the damages in common law. In principle, consideration was irrelevant in the requirement of a covenant, so the action was deemed to be a success when the trustee sued for damages. However, the action failed, with the main reason that the court would not allow a volunteer to succeed an action through their trustees.
On similar basis, this was much criticized by the fact that it went off the fundamental meaning of the general principle: ‘equity will not assist a volunteer’, which was not hindering the volunteer and restating the maxim to: ‘equity will stand in the way of a volunteer’.
Although Angelina’s children are volunteers under the trust, but can it be argued that the promise on covenant was made voluntarily and it would be a breach if it was not enforced? There was a divergence in judicial opinion on this matter, and a notable case would be upon Fletcher v Fletcher where the beneficiary was able to enforce a covenant that was on trust. Despite the beneficiary being a volunteer, Wigram LC held that she was a direct party under the covenant and the voluntary establishment of the covenant by the settlor amounted to the...